• Russian oil absence could send prices up to US$200
  • Long ramp-up in store for new supplies
  • High prices could accelerate energy transition

US$150 oil? That’s nothing according to high performing hedge fund manager Pierre Andurand, who has flagged that prices could climb as high as US$200 per barrel by the end of this year.

Speaking to Bloomberg, he expressed his belief that about 4 million barrels per day of oil supply is already out of trade on the market due to financial sanctions imposed on Russia and Western majors and traders refusing to even consider buying Russian oil.

He added that even if Russia and Ukraine declared a ceasefire, Russian oil would not return.

“We’ll have to live with higher prices to keep demand down, for it to be treated a bit more as a luxury product and also to accelerate the energy transition,” he noted.

Andurand – whose Andurand Commodities Discretionary Enhanced Fund marked gains of 87% in 2021 and 154% in 2020 – added that he does not expect to see demand destruction until prices hit the US$200/bbl mark.

The benchmark Brent crude appears to be on an upward trend and is currently commanding a price of US$108.91/bbl.


He’s not the only famous investor betting on oil

Famous business magnate and investor Warren Buffett is also betting on oil, with his company Berkshire Hathaway disclosing recently that it raised its stake in shale oil major Occidental Petroleum to 14.6% with purchases of 18.1 million more shares this week.

Adding further fuel to Andurand’s claims that Russian oil supply has been lost, the International Energy Agency has warned that the market could lose 3MMbpd of supply starting from April.

The US has already banned Russian oil imports while European buyers – despite not having official sanctions in place – have already not to buy oil from their giant neighbour.

JP Morgan reported that some 66% of Russian oil is now struggling to find buyers.


New supplies will be slow to ramp up

To make things worse, it will be some time before new sources of oil make their way onto the market.

OPEC is sticking to its guns with the consortium ignoring calls to ramp up production quickly and sticking to its plan to gradually increase production, the next of which is a scheduled rise of 400,000bpd.

And while US shale oil production is increasing, it is likely to be a gradual process as there is a time lag between drilling and oil production due to years of underinvestment.

Shale oil producers have also learnt some hard lessons from the last time when oil prices collapsed and are keen to practice capital discipline rather than sinking large sums of money into drilling and fraccing a large number of shale wells.

JP Morgan added that even if shale producers responded strongly to the price signal, it could not grow by more than 1.4MMbpd this year due to labour and infrastructure constraints.

The IEA added that even if a nuclear deal is reached with Iran, oil exports of up to 1MMbpd from the Islamic Republic could be months off.


Oil demand impacted

The high oil price have already led the IEA to reduce its demand growth estimate for 2022 by 1MMbpd to 2.1MMbpd.

It added there are actions governments and consumers can take to cut short-term demand for oil more rapidly to ease the strain caused by the absence of Russian oil.

The IEA also flagged that while the current crisis came with major challenges for energy markets, the combination of energy security and economic factors could accelerate the transition away from oil.